UN DPI-NGO Briefings: Microfinance: Ending Poverty One Loan at a Time” Presented by:
Department of Public Information of the United Nations - Non Governmental Organizations
UN HQ, Conference Room 3 NLB Dated: Thursday, 10 February 2011- NLB, Conference Room 3

Background: In 1976 in Jobra, Bangladesh, economics Professor Muhammad Yunus noticed the disproportionate impact that a simple $27 loan could make to an impoverished family. Motivated to do something to address this issue and do his bit to eradicate poverty he went on to create the Grameen Bank which made small loans available to low-income clients who traditionally lacked access to banking and related services. His work on developing micro-credit into an every more important instrument in the struggle against poverty spread beyond the borders of his native Bangladesh and eventually won him a Nobel Peace Prize in recognition of his efforts “to create economic and social development from below” and help to promote democracy and human rights. But while micro credit provides credit services to the poor, microfinance, the topic of today’s Briefing, offers a broader category of services, to as many poor and near-poor households as possible, giving them the opportunity to have “permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers. [Robert Peck Christen, Richard Rosenberg & Veena Jayadeva. Financial institutions with a double-bottom line: implications for the future of microfinance. CGAP Occasional Paper, July 2004, pp. 2-3.]

Microfinance is an important contributor to achieving the United Nations Millennium Development Goals (UN MDGs) in particular the goals of ending poverty and hunger, increasing universal access to education, and improving health services. Progress achieved as a result of microfinance services was highlighted in the 2009 UN MDG Report. Some of the successes highlighted included increased enrolment in primary education in developing nations (88 per cent in 2007, up from 83 per cent in 2000). According to the Report, the number of deaths of children under the age of five has also declined steadily worldwide — to approximately 9 million in 2007, down from 12.6 million in 1990.. Use of microfinance services has also contributed significantly to global progress in moving closer to actually meeting the target of eradicating poverty. Success can also be seen in data from Mix Market, the number one source for financial and social performance data on microfinance institutions, which finds that the rate of return on borrowed money is 97%.

Although the number of the world’s poor people, as reported by the World Bank, has dropped from 1.3 billion to just less than one billion in the last decade, there is still much more work to be done. A recent study by the United Nations Capital Development Fund (UNCDF) has found that, “Despite the rapid growth of the microfinance industry in the past ten years, it is estimated that between two and three billion people still lack access to a broad range of financial products and services on a sustainable basis.” February 10th 2011 This Briefing (dated February 10th 2011) looked at the history of microfinance, its role in alleviating poverty, what the UN and others have done in support of the poor, and the what NGOS, civil society and the private sector can still do to end poverty.
Source: Department of Public Information of the United Nations - Non Governmental Organizations

Gail Bindley-Taylor Sainte, the moderator of the briefing, opened the presentations by stating that today’s briefing entitled "Microfinance: Ending Poverty One Loan at a Time" is not a subject that UN actually tackled before, but for sure it is very interesting to cover. Eliminating global poverty is an ethical, social, political and economic goal. Developing countries with the world’s poorest people have no access to financial services its particularly challenging to earn enough money to cover the daily expenses as well as set aside funds for education and even unexpected expenses such as a sudden death. According to Ms. Sainte in the past 30 years microfinance has offered various tools to the world’s poor to assist them with financial situations, including the use of micro credit, small loan that is used in many cases to initiate a business. Overtime these businesses have been able to earn enough money not only to pay off what they borrowed but also to allow the borrowers to sustain considerable parts of these funds as income.

The first speaker of the panel, John Tucker, the Deputy Director of the Financial Inclusion practice area of the United Nations Capital Development Fund (UNCDF), started his presentation with an overview of state of Microfinance. According to Mr. Tucker’s slideshow, the numberof microcredit borrowers has grown 10x in recent years. However, the good news is domestic savings is a key source of financing and in the chart has shown that in recent years those domestic savings has also increased. Offering savings is a safe place to save is more important to poor people than credit or debt. Therefore, the growth in domestic savings is very important. According to Mr. Tucker’s data 2.5 billion adults around the world do not use formal or semi-formal financial services. Furthermore, 876 million of these unbanked people are in East Asia. Later, Mr. Tucker explained the United Nations Capital Development Fund’s (UNCDF) contribution to building inclusive financial sectors. According to the slide Mr. Tucker showed, UNCDF aims to reach 525,000 new savers by 2013 and right now has 1 million new savers whose applications were approved. UNCDF provides globally competitive fund (US$26 million) to facilitate new entrants to underserved LDC markets. Under the UNCDF there is a global thematic initiatives such as YouthStart, which is a regionally competitive fund (US$ 12 million) to increase sustainable access to appropriate demand driven financial and non-financial products and services to more than 200,000 poor and low income youth, ages between 12-24.

As a next speaker Dr. Ira Lieberman talked about how NGOs play a very vital role besides the commercial institutions. The technology of banking for the poor rapidly spread throughout the developing economies. One of the signs of the commercialization is the important multilateral expansion of the microfinance networks. Another signal that microfinance industry has become a serious niche player in the financial sector is that just prior to the financial crises three leading microfinance institutions went public, raised funds on their local capital markets. According to Mr. Lieberman the most important and most controversial question is, does microfinance eliminate poverty? First of all microfinance is a very important tool to smooth incomes, to prevent people from poverty, and for assisting families to take care of their basic needs.

Todd Watkins, the Arthur F. Searing Professor of Economics and Director of Lehigh University’s Microfinance Program, focused on the rapid growth in the industry and the evolution of the financial services and products. According to Mr. Watkins’ slide interest rates of the funds depends on the operating costs. For instance, if the interest rates charged rise if the operating costs increase. Therefore, driving operating cost down is the key to get the interest rates closer and closer to the rates in the United States. One of thekeys to keeping expenses down is the competition. For instance, Bolivia is one of the most competitive countries in the world, and from 1992 to 2007 the interest rates decrease by %40 in Bolivia. Mr. Watkins also mentioned that, the relationship between the size of loan portfolio and the operating expenses. Furthermore, the bigger size of loan portfolio ends up with low operating expenses; in other words the bigger you get more efficient you are.

Lynne Randolph Patterson, the co-founder and Director of Pro Mujer, talked about the process of establishing Pro Mujer in Bolivia and showed short clip of women from Bolivia whose lives changed in a better way with the help of Pro Mujer. One of the areas Pro Mujer focuses is the empowerment of women and helping them to gain their self-esteem and confidence since many women in Bolivia do not have the recognition that they deserve. Therefore, the team of Pro Mujer provides community meetings and safe place for these women to come and receive their loans and pay them back, and also to be together and support each other. Ms. Pattersonemphasized that as a result of their efforts, they see that women starting to take decision-making roles and they are participating in community organizations.

Q&A:
Q: What are the consequences when the borrowers can’t pay back their micro loans?
A: (Lynne Randolph Patterson) Pro Mujer has a very high repay rate, but the most important thing is to teaching people about the usage of the loans. Also, in Pro Mujer there is a support group that helps each other when someone is in a trouble and that’s when the social supports kicks in. furthermore, there might be times when group members dig in their pockets in order to help other group member to pay back their loans. Sometimes when someone is irresponsible or can’t manage the business then they will have to leave the group.
A: (Ira Lieberman) However, most the micro loans are given to individuals where there is no peer pressure or no peer support group, and some microfinance institutions can be very aggressive about collecting the money. Most of the times, poor people do their best to pay back their loans because it is their only access to survive.

Q: How can the works on empowering women be measured?
A: (Lynne Randolph Patterson) One of the most dramatic results is when we see the children of our clients who are graduating from school with high degress saying that “my mother is my role model”. Also, another result is many of our clients are becoming our best loanofficers, and these examples show that Pro Mujer is providing a ladder for these women to take responsibilities.

Q: Is microfinance for formal businesses only?
A: (Ira Lieberman) Even though sometimes it creates a problem in an informal sectors; still 80-90% of all businesses in Sub Saharan Africa are in the informal sector. So if you don’t support the informal sector microfinance those businesses couldn’t assist their families.

Q: Is there a backlash from men about empowering women?
A: (Lynne Randolph Patterson) Yes, the change is hard since nobody likes the change. But this shouldn’t stop us to work on balancing the roles of the genders and the balancing the powers. The benefits are so great for men as well as women. Men started to see their wives with a better self-esteem since they earn money and therefore their respect increased toward their wives and started to share the decision-making power with their partners.

John Tucker is the Deputy Director of the Financial Inclusion practice area of the United Nations Capital Development Fund (UNCDF) and has 20 years experience working in microfinance/inclusive finance. Mr. Tucker recently designed a global programme, MicroLead, which was awarded a grant of US$19.9 million from the Bill & Melinda Gates Foundation to support the expansion of top Microfinance Institutions to Least Developed Countries. He is the co-designer of the Global MicroStart Programme which was organized by the Consultative Group to Assist the Poor (CGAP) as being the successful model in the United Nations Development Program’s (UNDP) microfinance portfolio. Mr. Tucker’s current focus includes microfinance in post conflict countries such as Sierra Leone, Liberia, Timor Leste, Southern Sudan and Nepal. Prior to joining UNCDF, Mr. Tucker worked for UNDP in Tanzania, where he was responsible for microfinance programming. He holds a Master’s degree from Johns Hopkins School of Advanced International Studies (SAIS) is international economics, African studies and social change and development. Dr. Ira Lieberman is Chairman and CEO of Lipam International, Inc., an advisory firm that works with governments, international financial institutions, NGOs and the private sector in developing countries. He has been deeply involved in the microfinance industry since 1995. Dr. Lieberman started The Consultative Group to Assist the Poorest (CGAP) in June 1995 and managed CGAP as its CEO through June of 1999. From July 2003 through November 2004, he worked for the Open Society Institute (the Soros Foundation) to expand their microfinance activities while serving as a Senior Economic Advisor to George Soros. He currently holds several board positions for institutions that serve the microfinance sector including, Chairmanship of the Emergency Liquidity Fund for Latin America (ELF), a lender of last resort to Microfinance Institutions and their clients, at times of natural disaster or political or economic crisis and FINTECH, a technical assistance fund focused on microfinance in Africa. Dr. Lieberman has also served in several positions for the World Bank and has published widely on microfinance. Dr. Lieberman holds a BA from Lehigh University, Magna Cum Laude, and an MBA from Columbia University and Ph.D. from Oxford University. Dr. Todd Watkins is the Arthur F. Searing Professor of Economics and Director of Lehigh University’s Microfinance Program. Author of more than 50 related publications, his research and teachings focus on the intersection of innovation, entrepreneurship, microfinance, public policy, and economics. Dr. Watkins is co-editor of Moving Beyond Storytelling: Emerging Research in Microfinance, and a forthcoming textbook, Introduction to Microfinance. Dr. Watkins’ teaching areas encompass technology entrepreneurship, new product development and microfinance innovation. He has also worked with numerous Microfinance Institutions on technology development projects. Dr. Watkins is Director of Lehigh’s Baker Institute for Entrepreneurship and also runs Lehigh’s microfinance field immersion study abroad program. He has been a research consultant to the Advanced Technology Program of the National Institute of Standards and Technology (NIST) in the U.S. Department of Commerce as well as the U.S. Congressional Office of Technology Assessment. He has also served as a member of a National Academies’ Committee advising NASA on improving their innovation processes. Dr. Watkins holds a B.S. from the University of Rochester and his Ph.D. and Masters in Public Policy from Harvard University. Lynne Randolph Patterson is the co-founder and Director of Pro Mujer, an international women development and micro finance organization based in New York. Ms. Patterson spent the first part of her career in the United States promoting educational programs for low-income families and children. She worked as a teacher and administrator in the New York City and Port Washington, Long Island public school systems. In 1990, she moved with her family to Bolivia where she joined forces with Carmen Velasco, the co-founder of Pro Mujer, to develop training programs for women receiving donated food. Lynne and Carmen developed an inclusive, comprehensive program based on what the women insisted were their primary needs. The training programs in business, child development, health and family planning eventually led to the founding of Pro Mujer. Ms. Patterson holds degrees in Government (B.A. Principia College); Education (M.A. Teachers College, Columbia University); American History (M.A. New York University) and Educational Administration (Ed.D. New York University). Source: Department of Public Information of the United Nations - Non Governmental Organizations